Ind AS 110 Consolidation Procedure for Subsidiaries: formula sheet

Key formulas

Definition of control

Control = Power over investee + Exposure/rights to variable returns + Ability to use power to affect returns

All three elements must be met. If any one is missing, there is no control and no consolidation under Ind AS 110.

Power

Power = Existing rights that give current ability to direct relevant activities

Rights need not be exercised. Substantive rights count. Purely protective rights do not give power.

Exemption conditions (all four)

Wholly-owned, or partly-owned with other owners informed and not objecting + Not publicly traded + Not filing for public issue + Ultimate or intermediate parent publishes Ind AS consolidated FS for public use

Failing even one condition means the parent must consolidate. This is separate from the investment entity rule, where a parent that is an investment entity measures its subsidiaries at FVTPL instead of consolidating them (Ind AS 110 para 31). It still consolidates a subsidiary that provides services related to its investment activities (para 32).

Reassessment

Reassess control when facts indicate a change in any of the three elements

Control is not a one-time test at acquisition.

NCI at acquisition (proportionate method)

NCI = NCI % × Fair value of identifiable net assets of subsidiary at acquisition date

Gives partial goodwill. Net assets means after fair value adjustments and uniform policy adjustments.

NCI at acquisition (fair value method)

NCI = Fair value of NCI's holding at acquisition date

Gives full goodwill. Usually given in the question, for example fair value per share × NCI shares.

Goodwill

Goodwill = Consideration transferred + NCI at acquisition − Fair value of identifiable net assets

Under the proportionate method NCI is a share of net assets. Under the fair value method it is the fair value figure.

NCI at reporting date

NCI = NCI at acquisition + NCI % × post-acquisition change in subsidiary's equity (after adjustments) − NCI % × unrealised profit eliminated on upstream sales − NCI share of goodwill impairment (fair value method only) − NCI share of dividends

Use adjusted profit and OCI. Unrealised profit on upstream sales (subsidiary to parent) reduces the subsidiary's profit, so NCI bears its share. For downstream sales (parent to subsidiary) the whole elimination is borne by the parent and NCI is unaffected.

Attribution rule

Profit or loss and each OCI component → owners of parent and NCI by present ownership interests

Do this even if NCI becomes a deficit balance.

Uniform policies rule

Subsidiary figures adjusted to parent's policies before consolidation

Adjust profit, net assets and, where the difference existed at acquisition, goodwill and NCI.

Reporting date rule

Gap between reporting dates ≤ 3 months, adjust for significant transactions in the gap

Applies only when it is impracticable to prepare statements at the parent's date.

Change in ownership without loss of control

Adjustment to equity of owners of parent = Fair value of consideration paid or received − Change in carrying amount of NCI

NCI is adjusted by its proportionate share of the carrying amount of the subsidiary's net assets, including goodwill attributed to NCI. Goodwill is not remeasured. No profit or loss.

NCI adjustment when the parent buys shares from NCI

Reduction in NCI = Carrying amount of NCI × (% of subsidiary's shares bought from NCI ÷ NCI % before the transaction)

Use this only when the parent buys shares from NCI. For a sale to NCI, the increase in NCI = % of the subsidiary sold × carrying amount of the subsidiary's net assets in the consolidated statements. It is based on the amount sold out of the parent's holding, not on NCI's existing carrying amount. Include goodwill in that net assets amount only to the extent it is attributed to NCI under the method used. Under the proportionate share method, NCI carries no goodwill.

Gain or loss on loss of control

Gain or loss = (Fair value of consideration received + Fair value of retained investment + Carrying amount of NCI) − Carrying amount of subsidiary's assets (including goodwill) less liabilities ± amounts reclassified from OCI

Add OCI credits that are reclassified to profit or loss, and deduct OCI debits that are reclassified. Transfers within equity do not affect the gain.

Retained interest

Retained investment is recognised at fair value on the date control is lost

This fair value is the initial carrying amount for later accounting as an associate, joint venture or financial asset.

Treatment of OCI on loss of control

OCI items are treated as if the parent had directly disposed of the related assets or liabilities

Reclassify to profit or loss where the relevant Ind AS requires it. Otherwise transfer directly to retained earnings.

Definition of an investment entity (all three needed)

Investment entity = (investor funds for investment management services) + (business purpose: returns solely from capital appreciation, investment income or both) + (substantially all investments measured and evaluated at fair value)

Ind AS 110, paragraph 27. Fail any one condition and the entity is not an investment entity.

Typical characteristics

More than one investment + more than one investor + investors not related parties + ownership interests as equity or similar

Paragraph 28. Indicators only. Absence of one does not by itself disqualify, but needs a reasoned judgement.

Accounting for subsidiaries

Subsidiary of an investment entity: no consolidation, no Ind AS 103; measure at FVTPL under Ind AS 109

Paragraph 31. Fair value changes and dividends are recognised in profit or loss.

Services subsidiary

Subsidiary providing services related to investment activities: consolidate

Applies even to an investment entity. It is not measured at FVTPL.

Parent of an investment entity

Parent that is not an investment entity: consolidate all controlled entities, including those held via the investment entity

The fair value treatment applies only in the investment entity's own financial statements.

Quick revision

• Control = power over relevant activities + exposure to variable returns + ability to use power to affect returns.
• Consolidate line by line from the date control is obtained until the date it is lost.
• Eliminate intragroup balances, transactions, income, expenses and dividends in full.
• Eliminate the full unrealised profit in closing inventory. For upstream sales, allocate it between the parent and NCI in proportion to their holdings. For downstream sales, charge it entirely to the parent.
• Consolidated goodwill = consideration + NCI + fair value of previously held interest − net identifiable assets. Measure the net identifiable assets at acquisition-date fair value (Ind AS 103), not book value. If the result is negative, it is a bargain purchase: after reassessment, the gain is recognised in OCI and accumulated in equity as capital reserve. If there is no clear evidence that the acquisition is a bargain purchase, the gain is recognised directly in equity as capital reserve.
• NCI is shown within equity, separate from the parent's owners' equity.
• Use uniform accounting policies for the group. The subsidiary's financial statements used for consolidation must have the same reporting date as the parent's.
• If the reporting dates differ, the subsidiary prepares additional financial statements as of the parent's reporting date, unless this is impracticable. Where it is impracticable, adjust for significant transactions between the dates.
• A change in ownership without loss of control is an equity transaction; no goodwill change and no profit or loss.
• On loss of control, derecognise assets, liabilities and NCI, recognise retained interest at fair value, and take the gain or loss to profit or loss.
• An investment entity measures its subsidiaries at fair value through profit or loss instead of consolidating them, except for subsidiaries providing services related to its investment activities.
• Always attach working notes to each adjustment.

Common mistakes

• Treating more than 50% voting as automatic control. Fix: Majority votes usually give power, but check whether another party holds substantive rights over the relevant activities, such as contractual rights to direct them or a substantive veto. Rights held by a regulator are usually protective.
• Concluding there is no control when holding is below 50%. Fix: Test power from all sources. A large holding against widely dispersed holders can give de facto control, and substantive options can matter.
• Treating a deficit NCI balance as nil and giving the extra loss to the parent. Fix: For subsidiaries, attribute total comprehensive income to NCI even if NCI becomes negative. Show it as a negative balance.
• Computing NCI on the subsidiary's book net assets instead of fair value net assets. Fix: Rebuild net assets at acquisition at fair value, including policy adjustments, before computing NCI or goodwill.
• Recognising a gain or loss in profit or loss when the parent sells or buys shares and still controls the subsidiary. Fix: In consolidated statements it is an equity transaction. Show the difference in other equity attributable to owners of the parent.
• Changing goodwill when the parent buys more shares from NCI. Fix: Goodwill was fixed on gaining control. A later purchase from NCI only moves amounts between NCI and parent equity.
• Treating the four typical characteristics as mandatory conditions. Fix: The mandatory test is the three-part definition. The characteristics are indicators. Missing one needs judgement and disclosure, not automatic rejection.
• Measuring a services subsidiary at fair value. Fix: A subsidiary that provides services related to the investment entity's investment activities is consolidated. Only the investment subsidiaries are measured at FVTPL.

Exam tips

• In written answers, name the three elements as headings and apply the facts under each. This is the quickest way to score in provision-facts-conclusion form.
• In case-scenario MCQs, look for agent versus principal, protective rights and dispersed shareholders. These are the usual traps.
• For exemption questions, test all four conditions and name the one that fails. Examiners often change one fact, such as a pending public issue.
• Always mention that control is reassessed when facts change.
• If the parent is exempt and does not present consolidated financial statements, say that its separate financial statements under Ind AS 27 are its only financial statements.
• If the parent is an investment entity, say that it measures subsidiaries at FVTPL rather than consolidating them.
• Start every answer with one line: 'Control is kept, so equity transaction' or 'Control is lost, so deconsolidate and recognise gain or loss'. It earns marks and keeps you on track.
• Show the gain computation as a clear list: consideration, fair value of retained interest, NCI, less net assets including goodwill, OCI adjustment. Marks are often given per item.